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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 27, 1998
THE GNI GROUP, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 0-10735 76-0232338
(State or other jurisdiction (Commission file number) (IRS employer identification no.)
of incorporation)
2525 BATTLEGROUND ROAD DEER PARK, TEXAS 77536
(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code: (281) 930-0350
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Item 5. Other Events.
Litigation
On February 27, 1998, a class action lawsuit was filed in the Chancery Court of
New Castle County, Delaware against The GNI Group, Inc. (the "Company"), and
its directors, a copy of which is attached as Exhibit 99.1 to this Current
Report on Form 8-K.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
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Exhibit
Number Identification of Exhibit
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99.1 Class Action Complaint, William Chaffin and Marcia Chaffin, Plaintiffs, against
Newton E. Dudney, M.D., Titus H. Harris, Jr., John W. Lyons, Jr., Carl V Rush, Jr., G.
Stacy Smith, and The GNI Group, Inc., C.A. No. 16211-NC, (Delaware Chancery Court for
the State of Delaware in and for New Castle County), as filed February 27, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE GNI GROUP, INC.
(Registrant)
By:/s/ Carl V Rush, Jr.
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Carl V Rush, Jr.
President
Dated: March 9, 1998
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INDEX TO EXHIBITS
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Exhibit
Number Identification of Exhibit
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99.1 Class Action Complaint, William Chaffin and Marcia Chaffin, Plaintiffs, against Newton E.
Dudney, M.D., Titus H. Harris, Jr., John W. Lyons, Jr., Carl V Rush, Jr., G. Stacy Smith, and
The GNI Group, Inc., C.A. No. 16211-NC, (Delaware Chancery Court for the State of Delaware in
and for New Castle County), as filed February 27, 1998.
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SUMMONS
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
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WILLIAM CHAFFIN and ( CIVIL ACTION NO. 16211-NC
MARCIA CHAFFIN, (
( SUMMONS
Plaintiffs, (
(
VS. (
(
NEWTON E. DUDNEY, M.D., TITUS H. (
HARRIS, JR., JOHN W. LYONS, JR., (
CARL V. RUSH, JR., G. STACY SMITH, (
and THE GNI GROUP, INC. (
(
Defendants (
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TO THE SPECIAL PROCESS SERVER
YOU ARE COMMANDED:
To Summon the above named defendants so that within 20 days after
service hereof upon defendants, exclusive of the day of service, defendants
shall serve upon Norman M. Monhait, Esq., plaintiff's attorney whose address is
P.O. Box 1070, Wilmington, DE 19899-1070 an answer to the complaint.
To serve upon defendants a copy hereof and of the complaint.
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TO THE ABOVE NAMED DEFENDANTS:
In case of your failure, within 20 days after service hereof upon you,
exclusive of the day of service, to serve on plaintiff's attorney named above
an answer to the complaint, judgment by default will be rendered against you
for the relief demanded in the complaint.
Dated: March 3, 1998 /s/ Diane M. Kempski
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Register in Chancery
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
WILLIAM CHAFFIN and MARCIA (
CHAFFIN, on behalf of themselves and (
all others similarly situated, (
(
Plaintiffs, (
(
- - against - (
(
NEWTON E. DUDNEY, M.D., TITUS H. (
HARRIS, JR., JOHN W. LYONS, JR., (
CARL V. RUSH, JR., G. STACY SMITH, (
and THE GNI GROUP, INC. (
(
Defendants. (
C.A. No. 16211-NC
CLASS ACTION COMPLAINT
Plaintiffs, by and through their attorneys, allege the following upon
information and belief, except as to paragraph 2 which is alleged upon personal
knowledge:
THE PARTIES
1. Plaintiffs bring this action as a class action on behalf of
themselves and all other stockholders of the GNI Group, Inc. ("GNI" or the
"Company") who are similarly situated to void and enjoin defendants' efforts to
deprive the Company's public shareholders of their equity interest in GNI at a
grossly unfair and inadequate price and to usurp the benefits of the Company's
growth and future prospects for defendants' own benefit.
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2. Plaintiffs are and have been at all relevant times the owners
of shares of GNI common stock.
3. Defendant GNI is a Delaware corporation with offices at 2525
Battleground Road, Deer Park, Texas 77536. GNI is a waste management services
company. Through its subsidiaries, the Company provides treatment, storage,
transportation and disposal of hazardous and non-hazardous liquid and solid
industrial waste and by-product streams. As of February 1, 1998, the Company
had 6,634,525 shares of common stock outstanding owned by approximately 400
shareholders of record.
4. Defendant Carl V. Rush, Jr. ("Rush") is and was at all
relevant times President, Chief Executive Officer and a director of the
Company. Rush beneficially owned, as of August 31, 1997, 245,000 shares of the
Company's outstanding stock, representing approximately 3.2% of the Company's
outstanding shares. For the fiscal year ended June 30, 1997 (the "1996 Fiscal
Year"), Rush received $183,250 in salary and $13,200 in bonus.
5. Defendant Titus H. Harris, Jr. ("Harris") is and was at all
relevant times Chairman of the Board, a director, and a member of the
Executive, Audit, Compensation and Nominating Committees. Harris beneficially
owned, as of August 31, 1997, 269,555 shares of the Company's outstanding
stock, representing 3.5% of the Company's outstanding shares. For the 1996
Fiscal year, Harris received $148,500 in salary and $6,600 in bonus.
6. Defendant Newton E. Dudney, M.D. ("Dudney"}, is and was at all
relevant times a director of GNI and a member of its Compensation and
Nominating Committees. Dudney
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beneficially owned, as of August 31, 1997, 44,959 shares of the Company's
outstanding stock, representing .6% of the Company's outstanding shares.
7. Defendant John W. Lyons, Jr. ("Lyons") is and was at all
relevant times a director of the Company and a member of its Executive, Audit
and Compensation Committees. Lyons beneficially owned, as of August 31, 1997,
250,000 shares of the Company's outstanding stock, representing 3.3% of the
Company's outstanding shares.
8. Defendant G. Stacy Smith ("Smith") is and was at all relevant
times a director of the Company. Smith beneficially owned, as of August 31,
1997, 45,000 shares of the Company's outstanding stock, representing .6% of the
Company's outstanding shares.
9. The individual defendants identified in Paragraphs 4-8 above
are hereinafter referred to as the "Individual Defendants."
10. As directors and/or officers of GNI, the Individual Defendants
are in a fiduciary relationship with plaintiffs and the other public
stockholders of GNI and owe to plaintiffs and other members of the class the
highest obligations of good faith, fair dealing, loyalty and full disclosure.
CLASS ACTION ALLEGATIONS
11. Plaintiffs bring this action behalf of themselves and as a
class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on
behalf of all public stockholders of GNI, and their successors in interest, who
are or will be threatened with injury arising from the Individual Defendants'
actions as more fully described herein (the "Class"). Excluded from the Class
are defendants herein and any person, firm, trust, corporation, or other entity
related to or affiliated with any of the defendants.
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12. This action is properly maintainable as a class action.
13. The Class is so numerous that joinder of all members is
impracticable. As of February 1, l998 there were approximately 6,634,525 shares
of common stock outstanding, collectively held by approximately 400
stockholders of record. GNI's shares are actively traded on the NASDAQ National
Market (NASDAQ). Members of the Class are scattered throughout the United
States.
14. There are questions of law and fact which are common to the
Class and which predominate over questions affecting any individual Class
member.
15. Plaintiffs are committed to the prosecution of this action and
have retained competent counsel experienced in litigation of this nature.
Plaintiffs' claims are typical of the claims of other members of the Class and
plaintiffs have the same interests as the other members of the Class.
Accordingly, plaintiffs are adequate representatives of the Class and will
fairly and adequately protect the interests of the Class.
16. The prosecution of separate actions by individual members of
the Class would create a risk of inconsistent or varying adjudications with
respect to individual members of the Class and establish incompatible standards
of conduct for the party opposing the Class.
17. Defendants have acted and are about to act on grounds
generally applicable to the Class, thereby making appropriate final injunctive
relief with respect to the Class as a whole.
BACKGROUND AND CLAIM FOR RELIEF
18. On or about February 13, 1998, GNI announced in a press
release that: (i) GNI (through the Individual Defendants, who constituted GNI's
board of directors) had agreed to a proposed merger transaction whereby an
entity called 399 Venture Partners, along with an "Investor
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Group" comprised of certain members of GNI management (including some, if not
all, of the Individual Defendants), would acquire GNI at a price of $7.00 per
share (the "Merger Proposal"); (ii) certain shareholders representing 29% of
the fully diluted common shares of the Company, including some, if not all, of
the Individual Defendants, had executed agreements pledging to vote their
shares in favor of the Merger Proposal.
19. The February 13, 1998 press release further stated that the
members of the investment group who were also part of GNI's management (i.e.,
some, if not all, of the Individual Defendants), would retain an equity
ownership interest in the Company formed following the Merger.
20. Moreover, the press release announcing the Merger Proposal
fails to disclose the information in the possession of defendants regarding the
Company's future financial prospects. In particular, GNI is currently in the
middle of its third fiscal quarter and will complete that quarter in a matter
of weeks; investors are not privy to the information currently in the
possession of the Individual Defendants.
21. The Merger Proposal is wrongful, unfair and harmful to Class
members and represents an attempt by defendants or certain of them to
aggrandize their personal and financial positions and interests, and to enrich
themselves or their colleagues, at the expense of and to the detriment of Class
members. In seeking to consummate the Merger Proposal, the individual
defendants, some or all of whom suffer from conflicts of interest with regard
to the Merger Proposal, have failed to offer a fair price or afford Class
members adequate procedural safeguards, all in violation of their fiduciary
obligations.
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22. The proposed consideration of $7.00 per share is not the
result of arms-length negotiations, and is not based upon any independent
valuation of the current or projected value of GNI, but was fixed arbitrarily
by defendants, as part of their plan to advance their self-interests to the
detriment of the Class. The proposed consideration is grossly inadequate in
view of, among other things, the market price of GNI shares prior to the
announcement of the Merger Proposal (GNI's stock traded as high as $8.25 per
share in the prior year) and the present and projected value of the Company and
its securities.
23. Because of the control exercised by the Individual Defendants
over GNI, no third party, as a practical matter, can bid for the Company and
thus, it is unlikely that other bidders will emerge for GNI.
24. The Individual Defendants have violated fiduciary and other
common law duties owed to plaintiffs and other members of the Class in that
they are not exercising independent business judgement and have acted or are
acting to the detriment of plaintiffs and the class in order to benefit
themselves.
25. The Individual Defendants suffer from disabling conflicts of
interest in that their obligation under the circumstances to maximize
shareholder value conflicts with their desire as purchasers to pay the lowest
possible price per share.
26. In connection with the Merger Proposal, it does not appear
that any independent committee was established to protect the interests of
GNI's public stockholders. Moreover, there is no publicly available information
that suggests the Individual Defendants exposed GNI to the
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marketplace or made any other reasonable effort to determine the highest price
a third party would pay for GNI.
27. The Individual Defendants have agreed to a $4 million
termination fee, which represents approximately 9% of the transaction value.
This fee is excessive, cannot constitute a reasonable estimate of costs
incident to a termination, and can only be intended to deter interest from
third parties who may wish to consider acquiring GNI.
28. Defendants' fiduciary obligations require them to:
(a) undertake an appropriate evaluation of any bona fide
offers, and take appropriate steps to solicit all potential bids for the
Company or its assets, consider strategic alternatives and otherwise maximize
shareholder value;
(b) act independently, including requiring a vote of a
majority of the minority stockholders so that the interests of GNI's public,
stockholders are protected; and
(c) adequately ensure that no conflicts of interest exist
between defendants' own interests and their fiduciary obligations to the public
stockholders of GNI.
29. As a result of the foregoing, defendants have breached and/or
aided and abetted breaches of fiduciary duties owed to GNI's public
stockholders.
30. Unless enjoined by this Court, defendants will continue to
breach their fiduciary duties owed to plaintiffs and the Class and will
consummate the Merger Proposal, to the irreparable harm of the plaintiffs and
the Class.
31. Plaintiffs and the other members of the Class have no adequate
remedy at law.
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WHEREFORE, plaintiffs demand judgment as follows:
(a) Declaring this to be a proper class action and naming
plaintiffs as Class representatives;
(b) Ordering defendants to carry out their fiduciary
duties to plaintiffs and the other members of the Class, including the duties
of care, loyalty, and candor;
(c) Granting preliminary and permanent injunctive relief
against the consummation of the Merger Proposal as described herein;
(d) Declaring that defendants and each of them have
violated their fiduciary duties to the Class and/or aided and abetted such
breach;
(e) In the event the Merger Proposal is consummated,
rescinding the transaction effected by defendants and awarding rescissionary
damages;
(f) Ordering defendants, jointly and severally, to pay to
plaintiffs and to other members of the Class all damages suffered and to be
suffered by them as the result of the acts and transactions alleged herein;
(g) Awarding plaintiffs the costs and disbursements of
the action including allowances for plaintiffs' reasonable attorneys and
experts fees; and
(h) Granting such other and further relief as may be just
and proper.
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Dated: February 27, 1998
ROSENTHAL, MONHAIT, GROSS &
GODDESS, P.A.
By: Signature not legible.
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Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899-1070
(302) 656-4433
Attorneys for Plaintiffs
OF COUNSEL:
GOODKIND LABATON RUDOFF
& SUCHAROW LLP
100 Park Avenue
New York, NY 10017-5563
(212) 907-0700
HANZMAN CRIDEN KORGE
& CHAYKIN, P.A.
200 South Biscayne Blvd., Suite 2100
Miami, FL 33131
(305) 579-1222
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